Toast (TOST) Q3 2025: ARR Doubles to $2B as New Verticals Fuel Next-Stage Growth
Toast’s ARR doubled to $2 billion in just two years, underpinned by robust core execution and accelerating traction in new markets. Management’s conviction in expanding into international, retail, and enterprise segments is rising, with each now approaching $100 million in ARR and positioned as future billion-dollar businesses. Margin discipline and platform innovation—especially in AI—are enabling Toast to invest aggressively for scale while maintaining healthy profitability and setting the stage for sustained growth beyond 2026.
Summary
- Core Platform Drives Market Share Expansion: Toast’s US SMB business continues to deliver strong net location adds and rising win rates against major competitors.
- New Verticals Approach $100 Million ARR: International, food and beverage retail, and enterprise segments are scaling rapidly, validating Toast’s multi-TAM strategy.
- Margin Leverage Enables Strategic Investment: High-margin core business supports disciplined reinvestment in innovation and new growth engines.
Performance Analysis
Toast’s Q3 results highlight a business scaling efficiently on multiple fronts. The company doubled annual recurring revenue (ARR) from $1 billion to $2 billion in just two years, with both payments and SaaS ARR now exceeding $1 billion each. This milestone reflects not only the strength of Toast’s core US SMB restaurant platform but also the rapid traction in new segments. Total recurring gross profit from FinTech and subscription services grew 34% year-over-year, with margins expanding five percentage points to 35%—demonstrating operating leverage even as Toast invests in new verticals.
Location growth remains a key driver, with 7,500 net new locations added in Q3 and total locations up 23% to 156,000. SaaS gross margin improved to 79% (from 77% last year), aided by ongoing cost optimization. Payments ARR rose 31%, and gross payment volume (GPV) per location exceeded expectations during the summer, signaling healthy same-store sales trends. Toast’s take rate—the company’s share of transaction revenue—continued to climb, supported by targeted pricing actions and new product adoption such as surcharging.
- Net Location Adds Remain Robust: Consistent year-over-year growth in net adds is fueling both core and new segment expansion.
- Recurring Gross Profit Expansion: 34% YoY growth in recurring gross profit, with margin improvement reflecting scale and disciplined investment.
- Efficient Capital Allocation: Operating expenses (ex-bad debt) increased just 17%, while free cash flow conversion approached 100% of adjusted EBITDA.
Toast’s ability to sustain high growth while expanding margins and generating cash flow is a differentiator, giving it flexibility to invest ahead of the curve in emerging opportunities.
Executive Commentary
"We are an industry leader here in the US in our core business with a clear path to doubling our market share as we scale locations and deliver customer-focused innovation for restaurants. This success enables us to invest in our fast-growing new market segments."
Aman Narang, Chief Executive Officer
"Doubling our ARR underscores the strength and diversity of our business model, with both payments and SAS ARR each exceeding $1 billion for the first time. Our management team wakes up every day with the mindset of getting to 10 billion in ARR over the next decade."
Elena Gomez, Chief Financial Officer
Strategic Positioning
1. Core US Restaurant Platform—Foundation for Durable Growth
Toast’s core SMB and mid-market restaurant business accounts for 95% of ARR and remains the company’s anchor. Win rates against all major competitors are up year-over-year, and marquee brands such as Nordstrom, TGI Fridays, and Everbowl are migrating to Toast for unified, scalable solutions. The platform’s reliability and breadth—spanning handhelds, kitchen display systems, and now AI-driven insights—are cited as key differentiators by customers.
2. New Verticals and Geographies—Material Growth Levers
International, food and beverage retail, and enterprise segments are each approaching $100 million in ARR. International SaaS ARPU is up 20% YoY, reflecting both product expansion and regional adaptation. Notable wins include large hospitality groups in Ireland, the UK, and Canada, while retail customers are using Toast’s platform for end-to-end inventory and checkout management. These new markets are expected to drive the majority of incremental net adds in 2026 and beyond.
3. AI and Data-Driven Differentiation—Platform Stickiness and Upsell
Toast IQ, the company’s AI assistant, has already been adopted by over 25,000 restaurants with more than 235,000 uses since its October launch. This tool enables operators to make data-driven decisions, optimize menus, and automate marketing. Early results show meaningful impact—such as a Florida chain attributing a 20x return on ad spend to Toast’s advertising platform. While monetization is still nascent, management sees usage-based pricing as a future lever as adoption deepens.
4. Margin Expansion Fuels Investment Flywheel
Toast’s core business is already operating at its long-term 40% EBITDA margin target. This profitability gives management latitude to reinvest in new segments and innovation without sacrificing overall margin trajectory. Disciplined capital allocation and a focus on payback periods ensures that growth investments do not compromise financial health.
Key Considerations
This quarter marks a pivotal point for Toast’s transition from a single-vertical leader to a multi-vertical growth company, balancing scale with innovation and financial discipline.
Key Considerations:
- Multi-TAM Expansion Validated: International, retail, and enterprise are no longer hypothetical—they are now meaningful contributors with clear line of sight to billion-dollar scale.
- AI Platform Adoption Outpaces Expectations: Toast IQ’s rapid uptake shows strong product-market fit and opens future monetization pathways.
- Competitive Moat Deepening: Consistent win rate gains, marquee wins, and customer testimonials reinforce Toast’s platform advantage in a crowded market.
- Margin Discipline Sustained: High core margins enable Toast to invest through the cycle, absorb tariff costs, and expand sales capacity without eroding profitability.
Risks
Competitive intensity is rising, with established and emerging players targeting Toast’s core and new segments, potentially pressuring win rates and pricing power. Macroeconomic shifts could temper restaurant spending or slow new location openings, and international expansion introduces operational complexity and regulatory exposure. Management’s aggressive investment in new verticals heightens execution risk, especially as AI adoption and monetization models are still evolving.
Forward Outlook
For Q4, Toast guided to:
- FinTech and subscription gross profit growth of 22% to 25% year-over-year
- Adjusted EBITDA of $140 million to $150 million
For full-year 2025, management raised guidance:
- 32% growth in FinTech and subscription gross profit
- $615 million in adjusted EBITDA
Management emphasized continued net location growth and strong core margin as the foundation for ongoing investment in new TAMs. Margins are expected to be flat to slightly up in 2026, with growth sustained above 20% as new segments scale.
- Core margins support reinvestment in emerging segments
- Guidance reflects cautious macro assumptions but strong execution confidence
Takeaways
Toast’s Q3 signals a company entering a new phase of scale, with core execution and new vertical traction both exceeding expectations.
- Core Platform Resilience: Market share gains and marquee customer wins reinforce Toast’s leadership in US restaurant tech.
- Emerging Segments Gaining Critical Mass: International, retail, and enterprise units are poised to become major growth engines as they approach $100 million ARR each.
- AI and Product Innovation Set the Stage: High adoption of Toast IQ and advertising tools create new upsell and stickiness opportunities, with monetization levers still untapped.
Conclusion
Toast’s doubling of ARR to $2 billion, expanding into new verticals, and disciplined margin expansion position it for sustained multi-year growth. As core and new segments reach scale, the company’s platform model and AI investments are likely to deepen its competitive moat and drive long-term value creation.
Industry Read-Through
Toast’s rapid ARR scaling and multi-vertical expansion offer a blueprint for SaaS and FinTech platforms seeking to extend beyond core verticals. The combination of high-margin core operations, disciplined reinvestment, and rapid AI-driven product adoption is becoming a critical differentiator in vertical SaaS. For restaurant tech and broader retail SaaS, Toast’s success in driving both platform adoption and upsell through data and AI suggests a playbook for margin expansion and customer stickiness. Competitors will need to match both the breadth of offering and pace of innovation to keep up.